“If crude oil prices stay at current levels, U.S. consumer price inflation could hit a 16-year high of 5% by the end of the year, an analysis by London-based Capital Economics has concluded…”

“Inflation at that level, if sustained, could be both a wallop to consumer purchasing power, and a warning light to the Federal Reserve which has signaled it is paying more attention than usual to the inflationary implications of energy.”

“’The Fed is caught between a rock and a hard place as the dollar weakens and the economy faces headwinds from higher oil prices and financials tightening credit standards,’ said Gerald Lucas, at Deutsche Bank…”

“…’It puts the Fed in the box over cutting rates,’ said Marc Pado, chief market strategist at Cantor Fitzgerald. ‘How do you cut rates to save the financials when the dollar is getting killed? That's the crux of the whole matter.’”

“… Warsh sees equally-real inflation threats. The recent readings have been 'favourable,' he said but the higher prices of crude oil and other commodities 'will likely put upward pressure on overall inflation in the short run.'”